Adriana Kugler: Why Central Bankers Must Look Beyond Home

Central bank mandates are built around domestic conditions. Yet the past decade has pushed global developments and geopolitical risk to the center of the conversation, and that changes how the job gets done.

During the 1970s and 1980s, central banking paid close attention to external factors, before the focus of most central banks settled back onto domestic issues for the decades that followed. The last ten years have complicated that inward focus substantially. Looking back on my own time setting monetary policy, global developments and their implications for the U.S. economy were very much part of what I was weighing, alongside the traditional domestic questions. A record of that period is preserved at the Federal Reserve History archive.

To understand why this shift matters, it helps to remember how central bank mandates are built. Most central banks operate under a single mandate, usually centered on price and financial stability. The Federal Reserve is different: it carries a dual mandate, pairing price stability with maximum employment. That dual mandate is a large part of why the Board benefits from having labor economists in the room. The interplay between labor markets and inflation, along with the role of productivity, sits right at the center of the employment side of that mandate, and these were the exact questions occupying my research career before I joined the Board, and remain the focus of much of my public speaking and lectures today.

“This dual mandate is price stability plus maximum employment, which explains why they want labor economists like me on the board.”

There is a reason the employment side of the mandate benefits from a labor-market specialist, and it goes beyond tracking monthly job numbers. The relationship between employment, wages, inflation, and productivity sits close to the center of monetary policy. A tight labor market shapes wage growth, wage growth feeds into services inflation, and productivity determines how much of that wage growth an economy can absorb without generating inflationary pressure. That is the lens I brought from a research career studying labor markets in both developed and developing economies, questions about employment protections, occupational licensing, immigration, and the forces shaping productivity, which are not abstractions to me but the substance of decades of work.

Given those mandates, it makes sense that central bankers traditionally kept their attention close to home. For most of the postwar decades, that approach worked reasonably well, since the dominant forces acting on inflation and employment were largely domestic. I have discussed this evolution across a range of venues, catalogued on my speaker profile. But over roughly the last decade, much as in the 1970s and 1980s, the attention of central bankers has swung back toward global developments, because those developments have come to shape domestic inflation and employment so directly.

What changed is the growing weight of forces originating outside any single economy's borders. A war disrupts global energy and food markets and feeds directly into domestic inflation. Trade tensions reshape supply chains and change the prices of imported goods. Financial conditions set in one major economy spill across borders through capital flows and exchange rates. A central banker who ignores these channels is not being more faithful to a domestic mandate, they are simply missing the forces now shaping domestic outcomes. None of this means the mandate has changed, price stability and maximum employment remain the objectives, but achieving them now requires looking well past domestic borders.

As a labor economist, this global turn connects directly to the questions I find most pressing: how shocks travel through labor markets, how productivity responds, and how employment is shaped by forces set in motion far from home. I keep up ongoing commentary on these themes through my author page on Vocal and my video work on YouTube. The task facing central bankers is to hold the domestic mandate firmly while reading the global environment closely enough to actually fulfill it. The two are no longer separable.

Adriana Kugler, Ph.D., Labor Economist & Georgetown Professor